Tax Tips for Summer Jobs and New Graduates

During the summer, many students head into seasonal jobs while recent graduates begin full-time careers. These transitions bring opportunities not just for income, but for smart tax planning.

Hiring Your Child Can Create Tax Savings

Hiring your child can be a tax win if done correctly. You can deduct their wages like any employee, and it may shift income to their lower tax bracket. Since it’s earned income, the kiddie tax doesn’t apply, and their standard deduction can often offset most or all of their wages. Also, if you’re a sole proprietorship, single-member LLC, or a partnership of the child’s parents, wages paid to your child under age 18 are not subject to Social Security and Medicare taxes.

Just be sure the pay is reasonable, the work is legitimate business work, and you keep proper records to avoid IRS issues.

Kids May Qualify for “Exempt” Withholding Status

If your child owed no income tax for 2025 and doesn’t expect to owe for 2026, they can check the “exempt” box when completing their Form W-4 and increase take-home pay rather than waiting for a refund at tax time.

Keep in mind that this only applies to federal income tax. Social Security, Medicare, and state taxes may still apply.

New Graduates Can Boost Paycheck with Part-Year Withholding

The part-year withholding method allows new graduates to avoid overpaying taxes by spreading their income over the full year for withholding purposes. To qualify, they must expect to work 245 days or less and submit a separate written request to their employer. This helps increase take-home pay during the year instead of waiting for a refund.

Roth IRAs

Another smart financial step for students and recent graduates is opening an IRA. Income from a summer or full-time job may qualify you to contribute to a traditional or Roth IRA. For many young workers in lower tax brackets, a Roth IRA is often more beneficial since contributions are made after tax, and qualified retirement withdrawals are generally tax-free. Traditional IRA contributions may provide a current tax deduction, though future withdrawals are generally taxable. Even modest contributions made early can significantly benefit long-term savings.

If you have any questions about how these tips may affect you, please do not hesitate to reach out to your Wilkins Miller advisor.